Customs Union or Free Trade Area? The Role of Political Asymmetries
Posted: 18 Aug 1998
When trade policy is endogenously determined by lobbying, it matters whether countries are arranged into a customs union or a free trade area. This paper compares the two regimes when the member governments are asymmetric in their susceptibilities to lobbying and in their bargaining power within a customs union. In our model, a customs union never leads to lower tariffs for both countries, whereas it can lead to higher tariffs for both.
JEL Classification: F13, F15
Suggested Citation: Suggested Citation